What is the difference between GDP and GNI and how should I compare them?

The difference between GDP (Gross Domestic Product) and GNI (Gross National Income), lies in the distinction between the notions of ‘national’ and ‘domestic’. GDP measures all output produced within the borders of a country, while GNI is an indicator of all income registered by members of a nation. Thus, the term ‘national’ is linked with the idea of residency, whereas the word ‘domestic’ is used to refer to geographically confined economic activity. For example, the GDP measurements for the UK would include all final transactions carried out within the country by British and foreign agents alike. On the contrary, the GNI data would exclude foreign income flowing out of the country but would include income earned by British businesses and expats working overseas.
In more practical terms, GNI is defined as the sum of GDP and net transfers from abroad. Therefore, the GNI can be higher or lower than GDP depending on whether more income is flowing in or out of the country. Although in most cases the measurements prove to be fairly similar, significant discrepancies may arise in countries where migration, multinational activity or aid payments are high. For instance, countries hosting many migrants, will often record a lower GNI than GDP, while nations with emigration crises, like Greece or the Philippines, might witness the opposite effect. Similarly, GNI would be expected to exceed GDP in countries with several domestically registered multinational corporations operating abroad, such as the USA or France and vice-versa for less developed countries with foreign businesses operating within them or who receive large amounts of foreign aid.

Answered by Marco P. Economics tutor

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